Now is a great time to start a small business; in fact, there is a huge push for consumers to shop small rather than turn to big retailers - if you've read our economics article you'll know all about this! Shopping small (or local) helps preserve the local community and reduces your carbon footprint, among many other positives!
Do you think you have an excellent idea for a new business? Or want to earn some extra money out of a hobby but don't know where to start? Or even just want to know the basics of business? We're here to help.
How to start a small business
Our first piece of advice is to start small: this could be offering to walk your neighbour’s dog for a fee or distributing leaflets for local businesses. Before starting anything, take some time to research and learn more about the field you want to get into (for example, if that field is logistics, you might research how different companies send their product to customers) and how existing companies in that field are doing. Once you've done your research, come up with a name that will help you stand out from the crowd.
How to decide on a legal structure for your business
As the business establishes itself you’ll need to choose a legal structure, this structure will help determine how your business operates. This sounds pretty complicated, but in the early days of your business, it makes the most sense to be a sole trader - this is the simplest business structure and sole traders are responsible for the entire business AKA they get to keep the profits but are also liable for all losses.
Or, if you are partnering with someone else, you could choose to be a partnership. A general business partnership is when you and your business partner(s) personally share all the responsibility for and with the business. There are quite a few other legal structures out there, but these two require the least time or monetary investment in the early stages.
How much money is needed to start a business?
It's time to talk money! Before you write your business plan, you should know how you want money to flow in and out of your business. If you decide to start selling your much-loved gooey brownies, you need to think about how much you’ll spend on ingredients/packaging/distribution, versus what you’ll sell each brownie for.
It’s the time to ask some hard-hitting questions, and if you don't have good/clear answers, you need to re-evaluate until you do. After all, the main aim of a business is to make money, and if you don't have a clear idea of how you're going to make it, your business probably won't be successful.
What questions should you ask yourself before starting a business?
- How much money do you need to start a business? (This could be the money needed to buy raw ingredients for your product, or money needed for software subscriptions needed to support your business)
- How are you going to fund your business in the first place? (Are you going to use your savings or try to secure a loan?)
- What do you need to make sure your product sells? (Do you need to spend money on advertising or promote your product by selling it at half price? Also, if you're selling non-durable goods (cookies, for example), you only have a limited amount of time to sell them. If, however, you're selling durable goods like washing machines, do you have some sort of storage facility? Or do you need to pay for a space where your goods can be safely kept?)
Do you need business insurance?
Another thing to think about is insurance; almost everyone has some type of insurance, whether that's car insurance (you can't legally drive on the road without it!) or home insurance to protect your things against a robbery or fire. It's a good idea to take out business insurance as it helps protect you when anything goes wrong, and insurance is a legal requirement if you have employees.
In the early stages of starting your business, you most likely won’t need insurance but it’s a good thing to think about if you plan on scaling up and definitely an expense worth bearing in mind!
The next thing you’ll have to do as a business owner is to write a business plan - but don't worry, we've got a whole section for that coming up!
What are business records?
One of the most important things to do when starting a business is to create a system for keeping business records. Business is not for the disorganised, and if you want your business to grow, you need to keep the receipts! It's a great idea to keep your business and personal finances separate - think about it, if you’re buying ingredients for your brownies plus toothpaste for your dad, things are going to get a little complicated! Think about setting up a business bank account to help keep things clear. You'll have tax obligations at various points throughout the year, so it's crucial to stay organised and on top of things.
When do I start paying tax for my business?
Finally, once your business starts making money, you need to know how and when to pay taxes. Although there are certain thresholds in place that mean you don’t have to pay tax if you earn under a certain amount, but you should check what these are to avoid a nasty surprise.
Running a business comes with legal and accounting responsibilities, so you must know what's involved and how to do it. You'll need to register with HMRC and submit a tax return - there are loads of online resources to help you do this, so don't panic!
What is a business plan and how do you write one?
First things first, what is a business plan? Well, it's a written document that details how a business will operate, from the description of the product or service to marketing and financials. One of the first stages to starting a business is creating a business plan; it will help focus you on your goal and ensure everything you do helps your business in some way.
Your business plan doesn't need to be a huge document - start by describing your main aims with a couple of bullet points. If you have an idea that doesn't match up to one of your bullet points, then is it worth doing? If you think it is worth it, you might need to make another bullet point; if it isn't, it might be best to scrap the idea and refocus. Your business plan should be a blueprint of how you plan to meet your business objectives. So…
What is a business objective?
Business objectives sound a lot more formal and complicated than they actually are; they are simply the results the company aims to achieve. A business objective could be making more profit or increasing brand recognition! When developing business objectives, you want to think about your goals; without goals, there is no way to measure success!
An excellent framework for setting goals is SMART. Each of your goals should be Specific, Measurable, Attainable, Realistic and Timely. Let's go through the framework in a little more detail.
Specific - A specific goal has a much greater chance of success than a general goal. Enough detail should be provided so that there is no indecision or confusion as to what needs to be accomplished.
Measurable - Choose a goal with measurable progress so you are able to see the change as it occurs. A measurable goal has an outcome that can be assessed either on a sliding scale (1-10) or as a success or failure.
Attainable - This goal can sometimes be interchangeable with achievable. Is this goal attainable given the task at hand and the time needed to complete it?
Realistic - Is the goal relevant now or are we looking too far ahead? Goals shouldn't take years to complete; otherwise, motivation can waver. Smart goals are ones that can get done in good time and make sense for the business and the rest of the SMART goals.
Timely - Set a timeframe the goal should be completed in. For example, by next week, in six months, or the end of the year.
Want to hear some examples?
- We aim to grow our revenue by 10% from the previous quarter.
- We will use Instagram to increase our brand awareness; we will achieve 5,000 website home page views by year-end.
What is a business strategy?
Business planning! Business objectives! Business goals! Blueprints! It sounds a bit repetitive and unnecessary. But think of it like this:
- A business plan is how you think your business will work (what functions you see existing and how you see it operating).
- A business objective is the things you would like your business to achieve.
- A business strategy is what you need to do to ensure your objectives are met; this could mean hiring an employee to help keep up with demand or marketing your product to a different consumer base. Ultimately, your goals may change (you could have invented a new product and want to focus on that), and therefore, your business strategy has to change to fit your goals.
What are your next steps in business?
Do you see a future career in business management? Or think you've got what it takes to run your own business? Why not have a look at our Business Management virtual work experience programme to see if you really do mean business.
